International Journal of Finance, Insurance and Risk Management

Volume XII, Issue 1, 2022

pp. 100-118

The Impact of Financial Technology on Banking Sector:

Evidence from Egypt
Submitted 10/12/21, 1st revision 17/01/22, 2nd revision 10/02/22, accepted 01/03/22

Marwa Rabe Mohamed Ali Elkmash1

Abstract :

Purpose: Financial technology is now critical for each firm to ease and simplify commercial
transactions. The purpose of this study is to examine the efficiency of the banks in Egypt after
the spread of FinTech.
Design/Methodology/Approach: The shortage of studies in this field in Egypt is presented as
the paper's concern. Financial statement data were used for a period from 2014-2020 from
the CBE Egyptian bank with Fintech collaborations. Three alternative models with different
input-output combinations were developed, based on production, profitability, and
intermediation dimensions to evaluate the banks' efficiency using DEA technique.
Findings: The results revealed that the Egyptian banks' efficiency does not relatively
improved by introducing the financial technology except for deposits and total loans.
Research implications: This study contributes to the literature on the adoption status of
Fintech services in Egypt and its impact on the banks' efficiency. Egyptian banks need to find
more innovative ways to accelerates the transforming of the Egyptian society into a non-
monetary society.
Originality/value: This study holds significance as it provides the empirical evidence for
insufficient improving Egyptian banks' efficiency by introducing the financial technology
except for deposits and total loans and the necessity to rushes the renovating of the Egyptian
society into a non-monetary society as a part of the Egypt's 2030 Sustainable Development
Plan.

Keywords: FinTech, banking efficiency, DEA

JEL codes: G20, G23.

Paper type: Research article.

1
Department of Accounting, October University for Modern Sciences and Arts-Cairo, Egypt,
e-mail: mrabe@msa.edu.eg;
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1. Introduction

Banks are trying hard to provide easier, faster, more comfortable, secure services
and to convey the modern technology age, but on the other hand, they are facing
several challenges, especially with the development of financial technology
companies that have forced banks to keep pace with technology. Financial
technology, abbreviated as FinTech, is an invention that intends to contest with
established financial approaches in the supply of financial services. The first word
(fin) indicates finance, and the second word (tech) implies technology. It is a novel
industry that employs technology to advance financial activities by depending on
much more intense use of information technology. Furthermore, it made the
financial transactions too simple, as you can with one click convert money or open a
checking account, bank certificate, or depositing a check etc., (Leong and Sung,
2018).

FinTech's advantages concern all users of financial services; it has an impact on the
economy because of its effect on GDP and financial inclusion. It boosts the gross
domestic product (GDP) of digitalized economies by giving individuals and small,
medium, and big companies suitable entrees to a variety of financial products and
services (as well as credit facilities), which can increase total consumption and
ultimately GDP levels. Digital finance has the potential to promote economic
stability and financial intermediation for both clients and the economy. In banks,
FinTech is interested in connecting the IT department with the financial department
to enhance the system’s infrastructure and programming capabilities, the
development of FinTech business models around technology and software to be
flexible to any business needs without affording huge costs and preparatory work as
well.

FinTech considers as the main banking tool to achieve a high level of financial
inclusion (Anwar et al., 2020). According to the World Bank in 2014, only about
12% of Egyptians and 14% of adults had a bank account in Egypt, one of the world's
lowest penetration rates, while the mobile penetration rate of 102% and 33,9% of
internet users, which proven that FinTech is the great development that banks need
to improve its services, efficiency and increasing the inclusion (Nabil, 2019;
Demirguc-Kunt et al., 2018).

Big data is likewise an area where tech firms can greatly support banks and Firms,
resulting in a critical aspect of personalization and an overall better quality of
customer experiences. And now by the flood of FinTech startups in the market and
its competitor with bank's institutions, banks need to evolve into digitization.
FinTech applications have had an impact on the financial industry, resulting in the
following changes:

Lending/Loan: Mobile phones can now be used all across the world to apply for
loans. Customers can get credit reports at any time of year without revealing their
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credit scores. The backend of the entire lending sector is now significantly more
open as a result of this. In addition, he stated Digital Payments, in which customers
use mobile wallets as an alternative to credit cards. People can transmit money
without using traditional banks and handle payments more cost-effectively with
digital banking. Google Wallet and Apple Pay are two of the most well-known
digital wallets.

According to Mroczkowska (2020) there was more than one FinTech application.
First, trading online apps have enabled everyone with internet access to invest in the
market, analyze risk immediately, and spread expertise inside the online platform
itself. Banking for Individuals customers might now govern their finances through
the internet. Banks and start-ups in this field are evolving online wallets and profiles
to follow services, resulting in an improved and faster user experience that enhances
the digitalization of the world. Second, digital solutions are being used by InsurTech
insurance businesses to improve client experience. Users can sign up for new
services and submit claims directly from the app at any time. without consuming
time that they had to go through previously. Third, Personal wealth management is a
category of FinTech applications that focuses on improving the wealth management
procedures of enterprises and individuals. Fourth, Blockchain technology has
become an important part of today's financial scene. This cutting-edge technology
provides a transparent method of tracking financial transactions throughout their full
existence. Fifth, the Financial Conduct Authority (FCA) established RegTech
(Regulatory applications) in 2015. Innovative solutions are used in this industry to
improve compliance and give secure, cost-effective services. Its goal is to
standardize and improve regulatory processes' transparency, as well as to automate
features like risk management, transaction monitoring, and regulatory reporting to
some extent.

Egyptian banks cooperate with the Central Bank of Egypt and the regulatory bodies
to achieve economic growth to transform the Egyptian society into a non-monetary
society where technical expertise is shared to provide financial services to people
who do not deal with banks to enhance financial inclusion in Egypt. Financial
inclusion in Egypt need more bank branches in every place for easy access to
customers in all parts of Egypt, and consequently, the ATMs to provide financial
services and products at an affordable cost, to reduce poverty, achieve economic
growth, and financial illiteracy (sustainability report 2019 ‘CIB’)2.

The goal of this research is to find out how financial technology affects Egyptian
banks' efficiency. We aim as well to introduce innovative ways to encourage
investors to invest in FinTech start-ups to increase the number of FinTech firms in
Egypt to improve the efficiency of banks and understand the challenges that face
FinTech spread. Therefore, the study is seeking answers to the following questions:

2
https://ir.cibeg.com/en/sustainability-reports.
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Q1: How has FinTech affected the banking industry in Egypt?

Q2: What are the best practices to make banking more efficient?
Q3: What are the finest ways for financial technology to reach all segments of
society?

The remainder of this research is organized as follows. The literature review and
hypotheses development are discussed in the second section. The research
methodology is discussed in section 3. The results will be presented in section 4 after
that the conclusion and discussion are addressed in section 5.

2. Literature Review and Research Hypotheses

Parameshwar et al. (2019) stated that Fintech practices are causing disruptions in
traditional financial institutions, according to the report. Based on the likelihood or
significance of GDP growth, Nepal, Malaysia, India, Indonesia, Thailand, the
Philippines, and Vietnam are among the nations represented in the sample. World
Bank statistics (2015-2017), as well as other important websites such as the Global
FinTech Report (2013-2017), World FinTech Reports (2017), and PWC Global
FinTech survey, were used to compile relevant data (2017). FinTech services such as
mobile money accounts, utility bill payment, and using mobile and internet to
contact financial institutions were found to be helpful. Supporters of FinTech
businesses, such as venture capitalists and private equity, have a favorable impact on
Asian countries' GDP.

Wonglimpiyarat (2017) explore FinTech and its dynamic transitions in the banking
industry. The study introduced a systemic innovation model which can be used as a
dynamic tool to track the growth and design of the technology development and
diffusion. The research confers the newest financial innovation of PromptPay
FinTech – the e-payment system in Thailand as well. The case study approach has
been used to examine the systemic innovation characteristics of FinTech-based
innovations. Interviews with five main commercial banks in the financial services
industry of Thailand have been conducted. The findings illustrated the systemic
characteristics of FinTech-based innovations in the banking industry, both on a
global scale and in Thailand's case. The investigates have shown that systemic
characteristics of the innovation process are the outcome of interactions between the
complexity of the innovation and the capabilities of innovators in handling the
innovation.

Panjwani and Shili (2020), tested the influence of financial technology on the growth
of the Islamic banking sector in the modern world. The sample taken for this study is
the Islamic banking sector in the contemporary world for the period 2014 to 2018.
The results showed that financial technology appears to play a key role in the
empowerment of people who do not have access to financial services, resulting in
immediate and sustained interest for people, the planet, and wealth. The financial
sector's fast change has affected people all across the world. The rapid digitalization
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prompted a significant increase in the use of technology in the banking business,

particularly in the Islamic banking sector. This study investigates how financial
technology advances motivate financing efforts to improve the quality of Islamic
banking sector services in today's world, as well as the new concept of digital
Islamic banking.

Drasch et al. (2018) clarify the effect of digital transformation in the financial
sector, and the cooperation between banks and financial companies, the sample used
in this research is based on the literature, 136 real-world cases, and 12 experts with
Bank executives and industry experts in financial technology were executed.
Findings point to 13 parameters for organizing and defining bank-fintech
collaboration. Furthermore, the empirical investigation enables the detection of
prevalent cooperative behaviors. good consideration must be given to the effect of
cooperation between banks and financial companies, as it may result in some
security risks for banks, and that study made some proposals, such as making a
classification scheme for workers to evaluate joint efforts in the interaction of banks
with companies.

Baber (2020) investigated the effect of FinTech applications and crowdfunding on

customer retention at Islamic banks in Malaysia and the United Arab Emirates, the
sample for this study was drawn from 535 customers from selected Malaysian and
UAE banks. Cronbach's alpha was used to test the consistency of all FinTech,
crowdfunding, and customer retention elements. The Kaiser–Meyer–Olkin (KMO) is
used to see if the data set was suitable for factor analysis. The results have shown
that there is no relevant relation between financing applications of FinTech and
customer retention in the selected banks, but other variables such as crowdfunding,
payments, advisory services, and compliance have a positive effect on retaining
customers of Islamic banks in the selected countries.

Wang et al. (2021) FinTech's possible impact on the banking industry was
investigated from 2009 to 2018, 113 Chinese banks were sampled, there are 18
national banks (six state-owned big banks and twelve joint-stock banks), 72 urban
commercial banks, and 72 rural commercial banks (a total of 72). 23 TFP was used
to assess bank competitiveness, the DEA Malmquist technique was used to calculate
TFP, SYS-GMM, and DFF-GMM were used to enhance the results. FinTech
development has a favorable impact on earnings, financial innovation, and risk
management, according to the findings. Commercial banks can improve their
performance by implementing financial technology.

Wang et al. (2021) tested the influence of FinTech development on banks risk-taking
on a database of 320 banks in China and found that the FinTech development
reduces banks risk-taking especially in banks with low efficiency, and the banks
with more shadow banking business are available mostly for the negative impact of
FinTech. They suggest cooperation between banks and FinTech to reduce risk-taking
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and recommend more researches in different countries to enable more generalization

of the results.

Cheng and Qu (2020) clarified how financial technology banks affect credit risk in
China, the sample taken for this study is 60 commercial banks in China from 2008 to
2017 as that Financial technology banks reduce the risk of credit for Chinese
commercial banks, and financial technology banks are the least risky among the
traditional state-owned banks, and the development of Internet technology is higher
on AI technology and blockchain.

Hu et al. (2019) through empirical research, examine the primary elements that
influence the selection of FinTech services, as well as user behavioral goals in
China. To examine how consumers, embrace Fintech services, the authors present an
improved technology acceptance model (TAM) that integrates user innovativeness,
government support, brand image, and perceived risk as drivers of trust. A
questionnaire was sent to the clients of the Hefei Science and Technology Rural
Commercial Bank and got 387 qualified replies. The results show that there was
confidence between users of financial technology, but there were some risks such as
Internet risks, social risks, and others. Furthermore, users' views toward Fintech
adoption are unaffected by perceived ease of use or perceived risks.

Ntwiga (2020) investigated the influence of FinTech on banks' collaboration by

measuring the technical efficiency in the Kenyan banking sector. The sample taken
for this study is five banks for the period from 2009-2018 in Kenyan. The results
showed a positive relationship between financial technology and banks efficiency, as
financial technology helped to increase technical efficiency on a large scale. The
results showed that the period before the use of technology was suffering from a lack
of efficiency and high productivity.

Li et al. (2017) indicated the ability of FinTech on digital banking. The sample taken
for the study is 47 incumbent US retail banks from 2010 to 2016. ROA-ROE is the
measurement of FinTech on digital banks. The results indicate a positive relationship
exists between the growth in FinTech funding or deals and the concurrent stock
returns of incumbent retail banks. Although these results suggest complementarity
between FinTech and traditional banking, the results at the banking industry level
are not statistically significant, and that the coefficient signs for about one-third of
the banks are negative, but not statistically significant. Since the FinTech industry is
young and our sample period is short, they stated that they cannot exclude that their
findings are spurious.

Siek and Sutanto (2019) explained the influences of fintech on the conventional
banking industry in Indonesia and that FinTech can be a great competitor for banks
especially in payment gateway and peer-to-peer (P2P) services that affect traditional
financial business. To expose a range of value propositions that dominantly impact
the adoption of fintech or banking products, this study looked at several crucial and
 The Impact of Financial Technology on Banking Sector: Evidence from Egypt

106

practical criteria, such as customer satisfaction, net promotion score, promotion, ease
of use, etc. The results demonstrate that the banks have been disrupted by the
payment fintech since the appearance of fintech companies in around 2015.
Furthermore, fintech startups have digital strategies for approving a customer-centric
mindset and developing a product that provides high customer satisfaction. P2P
fintech, on the other hand, does not now pose a serious threat to banks, since clients
place a higher priority on security.

Butt and Khan (2019) looked into the strategic factors that go into finding Fin-Tech
investment targets, as well as the problems that banks experience during
implementation. They investigated the challenges that banking sectors face when it
comes to investing in Fin-Tech. This study employed a convenience-based sample
case study technique with five banks in Pakistan. Field notes, recordings, and
transcriptions of interviews with branch managers are among the most important
data sources. The findings revealed that Fin-Tech is in early stages in banking sector
of Pakistan and Pakistan prefers to outsource financial activities to Fin-Tech firms
for a variety of reasons, including high quality, new technology, software
maintenance, and a competitive market edge.

In Pakistan, there are several difficulties with Fin-Tech implementation. One of the
main causes is consumer acceptance, which means that customers in Pakistan are
hesitant to adopt financial innovations due to low literacy and high poverty rates,
and as a result, they are uninformed of the latest Fin-Tech products. People prefer to
visit branches for their banking transactions rather than using financial technology to
secure the privacy and security of their transactions, which is a major issue.
Pakistan is said to need to upgrade its FinTech infrastructure. The government must
also devote more resources to resolving these issues.

Pu et al. (2021) illustrated the interaction between banks industry and FinTech in
Lithuania by collecting annual reports from Lithuanian banks during 2003-2019 and
analyzing the FinTech sector by SWOT & PESTEL analysis. Regression analysis
results reveal that FinTech companies improve banks' efficiency especially in
payment services and increase customer satisfaction and FinTech affects economic
growth by financial inclusion.

Yang et al. (2017) the researchers in 2015 looked at whether Fintech adoption
contributed to the Taiwan banking industry's productivity increase. The study
estimates the 25 specified sample banks using the preferred Cost Malmquist Index
from 2010 to 2015 to evaluate such a potential influence. The empirical conclusion
reveals that throughout the observed period of 2010-2015, there was favorable
evidence to support Fintech adoption as a possible contributor to the Taiwan banking
industry's perspective expansion of competitiveness.

Wong and Ho (2020) looked into the influence of FinTech innovations on the Hong
Kong banking industry. For this study 45 banks in Hong Kong were chosen as a
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107

sample for the period 2017-2019. The measurement of financial technology is the
percentage of a bank's financial services and operations that have already integrated
FinTech innovations, while the metrics of banks are cumulative changes in their
cost-to-income ratio and return on assets.

According to the study results, incumbent banks that perceive Fintech as a

complement and enabling technology that helps them increase efficiency and satisfy
the need for underserved consumers outnumber those who regard it as a risk and a
substitute for their present operations by a wide margin. Given the widespread
interest in and rising acceptance of Fintech by banks, the effect of Fintech is
becoming more apparent, with most institutions formerly believing themselves to be
immune now realizing that they may not be. Most incumbent banks have taken a
pragmatic approach and have made demonstrable steps to incorporate Fintech into
their business processes.

Gohary (2019) clarified that e-government in Egypt needs FinTech companies to

improve and facilitate its services. The sample was a questionnaire for 400
respondents that indicate that 70% of respondents found difficulties in using the
website, shortage in employee's efficiency, poor services and transactions in the
system, and the slow internet speed so, the study suggests cooperation with FinTech
to solve the problems and awareness campaign to increase trust as 30% of the
respondents didn't use e-government. The findings found that bank accounts with e-
government did not influence any of the dimensions of the enabling service, whereas
the remaining components affect some aspects but not others.

The author tried to explore the FinTec impact on banks efficiency in the countries
included in the literature summarized in the following Table 1:

Table 1. FinTec impact on banks efficiency in the countries included in the literature
Author Country Results
Wang et al. China FinTech development has a favorable impact on earnings,
(2021) financial innovation, and risk management.
Hu, Z. et al. China There was confidence between users of financial technology,
(2019) but there were some risks such as Internet risks, social risks,
and others.
Cheng, M., China • Financial technology banks reduce the risk of credit for
& Qu, Y. Chinese commercial banks
(2020). • Financial technology banks are the least risky among the
traditional state-owned banks
• The development of Internet technology is higher on AI
technology and blockchain.
Wang, et al. China FinTech development reduces banks' risk-taking especially in
(2021) banks with low efficiency.
Ntwiga, D. Kenya a positive relationship between financial technology and
B. (2020 banks efficiency
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108

Li, Y., et al US • FinTec impact on banks efficiency in the countries

(2017) included in the literature
Pu, et al Lithuania FinTec impact on banks efficiency in the countries included
(2021) in the literature
Yang, Y. L., Taiwan Fintech adoption has a possible contributor to the Taiwan
et al. (2017). banking industry's perspective expansion of competitiveness.
Wong. J & Hong Fintech as a complement and enabling technology that helps
Kelvin Ho, Kong them increase efficiency and satisfy the need for underserved
(2020) consumers outnumber those who regard it as a risk and a
substitute for their present operations by a wide margin.
Siek, M., & Indonesi • Banks have been disrupted by the payment fintech since
Sutanto, A. a the appearance of fintech companies in around 2015.
(2019) • Fintech start-ups have digital strategies on approving a
customer-centric mindset and developing a product that
provides high customer satisfaction.
Butt, S., & • Fin-Tech is in early stages in banking sector of Pakistan
Khan, Z. A. and Pakistan prefers to outsource financial activities to
(2019). Fin-Tech firms for a variety of reasons, including high
quality, new technology, software maintenance, and a
competitive market edge.
• In Pakistan, there are several difficulties with Fin-Tech
implementation. One of the main causes is consumer
acceptance where people prefer to visit branches for
their banking transactions rather than using financial
technology to secure the privacy and security of their
transactions.
Panjwani. K contemp Financial technology appears to play a key role in the
& Shili. N, orary empowerment of people who do not have access to financial
(2020) world services.
Baber Malaysia • No relevant relation between financing applications of
(2019) and the FinTech and customer retention in the selected banks
United • Other variables such as crowdfunding, payments,
Arab advisory services, and compliance have a positive effect
Emirates on retaining customers of Islamic banks in the selected
countries.
Gohary, E. Egypt • 70% of respondents found difficulties in using the
E. (2019) website, shortage in employee's efficiency, poor
services and transactions in the system, and the slow
internet speed
• bank accounts with e-government did not influence
any of the dimensions of the enabling service
Source: Own study.

Banks are trying to join the era of modern technology, but they face many
challenges, especially with the appearance of financial technology companies that
forced banks to keep pace with technology, and therefore, banks put their banking
operations as the development of financing operations. Although financial
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109

technology faces several problems, the first of which is not being widely used by
citizens. This is due to the lack of awareness among individuals. Therefore, officials
should spread awareness among citizens, given that the government is taking serious
steps towards financial inclusion. Also, the government must put in place
appropriate measures that help to fair competition between innovators.

Several researchers (Wang et al., 2021; Hu et al., 2019; Cheng and Qu, 2020;
Cheng, Qu, 2020; Ntwiga, 2020; Li et al., 2017; Pu et al., 2021; Yang, et al., 2017;
Wong and Ho, 2020; Siek and Sutanto, 2019) exposed that FinTech applications
have a positive effect on the banking sector. Though some researchers (Baber, 2020;
Gohary, 2019) revealed that FinTech services have a negative relationship with
banks' efficiency as some challenges were facing the FinTech implementation. Four
studies in China have reported the positive impact of financial technology on banks'
efficiency, this indicates China's success to overcome the FinTech implementation
challenges.

In Egypt, Gohary (2019) concluded that Egypt needs to improve its internet services
first and increase citizens' awareness of FinTech and enhance confidence in its
services. The following Research Hypo is elaborated on in the preceding discussion:

H1: Financial technology has a positive impact on the efficiency of the banking
sector, and it is divided into 3 sub-hypotheses:
H1a: Financial technology has a positive impact on deposits and total loans.
H1b: Financial technology has a positive impact on total loans and interest
income.
H1c: Financial technology has a positive impact on interest expenses and
deposits.

3. Research Methodology

The data source, data analysis methodologies, and the definition and measurement of
variables are all discussed in this part. The analysis used financial statement data for
a period of eight years (2014-2020) from the CBE Egyptian bank with Fintech
collaborations. Where Egyptian Central Bank became a principal member of the AFI
in July 2013. In 2015, financial inclusion was inserted in Egypt's 2030 Sustainable
Development Plan, it becomes a national priority (Egypt SDS 2015). In this study,
the Fintech periods are used to cover Fintech cooperation in the banking sector.

3.1 Data Envelopment Analysis

The DEA technique is used to assess efficiency ratings in this study which has two
types, namely: constant return scale (CRS) and variable return scale (VRS), as either
of the two types, can calculate the efficiency indicators, and in this research we used
CRS, to measure the technical efficiency, There are two methods for calculating
technical efficiency indicators, the first one from the input side "input-oriented
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measures", and the second from the output side "output-oriented measures", And in
this research, we used "output-oriented measures" and multi-stage DEA method
which is more computationally demanding than the other two methods (Coelli,
1996).

The ability of a bank to maximize outputs from a particular set of inputs is referred
to as TE, and it is linked to managerial decisions. The PTE is a measure of TE that
shows managerial flaws in managing the bank's resources, or management
performance. SE refers to the relationship between output and average cost, and
hence to the size of the organization's operations or manufacturing scale, as well as
the appropriate bank size Singh. D., and Fida, B.A. (2015).

The technical efficiency (TE) consists of overall TE calculated by the CRS, PTE
calculated by the VRS, and scale efficiency (SE) calculated by the ratio of TE and
PTE (Yilmaz and Gunes, 2015). A bank can operate under three different return to
scale scenarios: constant return to scale, declining returns to scale, and growing
returns to scale. If the output increases (decreases) more than the inputs, the
organization is experiencing a rising (decreasing) return to scale. The bank faces the
dilemma of undersizing (oversizing) to increase (decrease) returns to scale, resulting
in operations below (above) the ideal size. If the output changes appropriately with
the growth or reduction in inputs, the organization is scale efficient (Abel and Bara,
2017).

Intermediation, production, and profitability are the three primary methods or

dimensions in the DEA model, which are specified by the model's input and output
variables. Banks are viewed as intermediaries who route funds from surplus units to
deficit units, collecting monies from depositors and turning them into loans,
according to the intermediation theory.

The production method supposes that banks use resources and inputs such as capital
and labor to produce deposits, loans, and services (Singh and Fida, 2015). Cost-
related items such as staff expenses and non-interest expenses are used as inputs, and
revenue-related items such as net interest income and non-interest income are used
as outputs in the profitability method (Novickyte and Drozdz, 2018).

3.2 Variables Definition and Measurements

Table 1 shows the input and output variables for the DEA model utilizing the
intermediation dimension: deposits, interest income, loans, and interest expenses.
The DEA variables are used to determine the technical (CRS), pure technical (VRS),
and scale efficiency (ratio of CRS and VRS) of the CBE with Fintech cooperation.
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111

Table 2. DEA input, output variables ant its measurements for the intermediation
dimension
Model Input variables & Measurements Output variables & Measurements

M1 Deposits (D) Customers’ deposits Total Loans (TL)

M2 Interest Cost of deposits Deposits(D)
expenses (IE)
M3 Total loans (TL) Includes loans and facilities Interest income (II) Loan interest
to customers and banks,
loans and advanced to
customers and banks.
Source: Own study.

4. Results

The data was examined using R software. Based on the three models in Table 2, the
DEA model calculates the efficiency ratings for the CBE Fintech collaborating
during the Fintech period. This section contains the DEA model's data analysis and
findings, as well as its conclusions and debates. The DEA output-orientation is used
to present the findings for each of the three models M1, M2, and M3.

4.1 Descriptive Statistics

The TE, SE, and PTE for the DEA models are presented in this segment. The
statistics for the TE, PTE, and SE built on the mean, standard deviation, and return
to scale are highlighted in this section as well.

Table 3. Descriptive Statistics for the Efficiency Scores based on M1, M2, and M3
Efficiency Statistic 2014 2015 2016 2017 2018 2019 2020
M1
Mean 0.859 0.812 0.869 0.878 0.719 0.844 0.837
TE 3SD 0.167 0.160 0.132 0.130 0.190 0.167 0.142
Mean 0.889 0.879 0.910 0.905 0.866 0.882 0.882
PTE SD 0.176 0.180 0.141 0.142 0.181 0.170 0.140
Mean 0.967 0.928 0.957 0.972 0.829 0.957 0.948
SE SD 0.049 0.145 0.168 0.285 0.211 0.179 0.211
RTS I I I I D I I
M2
Mean 0.865 0.850 0.729 0.708 0.653 0.754 0.721
TE SD 0.120 0.115 0.160 0.190 0.278 0.228 0.197
Mean 0.962 0.929 0.870 0.860 0.852 0.868 0.854
PTE SD 0.058 0.102 0.183 0.195 0.203 0.180 0.200
Mean 0.902 0.914 0.851 0.835 0.785 0.879 0.858
SE SD 0.130 0.049 0.145 0.168 0.285 0.211 0.179
RTS D D D D D I I
M3
Mean 0.888 0.954 0.887 0.935 0.863 0.927 0.855

3
Standard deviation
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112

TE SD 0.078 0.050 0.089 0.053 0.107 0.060 0.139

Mean 0.950 0.969 0.959 0.978 0.948 0.989 0.979
PTE SD 0.068 0.053 0.091 0.038 0.072 0.016 0.047
Mean 0.935 0.985 0.925 0.957 0.913 0.938 0.875
SE SD 0.062 0.018 0.047 0.052 0.109 0.065 0.144
RTS4 D I D D D D D
Source: Own study.

Table 3 shows that the first model (M1) exhibited declining returns to scale in 2018
and increasing returns to scale from 2014 to 2020, except for 2018. The second
model (M2) exhibits growing returns to scale for two years and decreasing returns to
scale for the remaining five years. The third model (M3) has growing returns to
scale for one year and decreasing returns to scale for the remaining six years.

Overall, increasing returns to scale (IRS) express that the output increases by more
than the proportional change in all inputs as happen in M1. decreasing returns to
scale (DRS) express that the output increases by less than the relative change in all
inputs as happen in M2 and M3. Model M1 has growing returns to scale in
the Fintech period, therefore Fintech is valid for taking deposits and lending. During
the Fintech period, the returns to scale of models M2 and M3 decreased.

Regarding the mean technical efficiencies, M1 (71.9 percent - 85.9%), M2 (65.3

percent - 86.5 percent), and M3 which have the highest mean technical efficiencies
(85.5 percent - 95.4 percent). Relating to the pure technical efficiency scores, Model
M1 (86.6 percent -91.0 percent), M2 (85.2 percent - 96.2 percent), and M3 (94.8
percent - 98.9 percent) which is the highest pure technical efficiency scores. In
general, model M3 had a better performance in terms of efficiency scores for the
eight years. Concerning the mean scale efficiencies, M1 (82.9 percent - 96.7
percent), M2 (78.5 percent - 91.4 percent), and M3 (87.5 percent - 98.5 percent) are
the three models' scale efficiencies. For the eight years, Model M3) Total loans (TL)
and Interest income (II)) exhibited greater mean scale efficiencies.

The scale inefficiency due to the scale of operations are model M1 (2.1% - 17.1%),
M2 (4.0%-21.5%) and M3 (1.5% - 12.5%). The inefficiency due to managerial
decisions or PTE efficiency are model M1 (8.0%-13.4%), M2 (3.8%-18.1%) and M3
(1.1% - 9.2%). The main source of technical inefficiencies in the intermediation
process is due to both the scale of operations (SE) and managerial decisions (PTE).
Therefore, the CBE exhibited poor utilization of inputs, managerial inefficiencies,
and not operating at an optimal scale.

The results revealed that regarding the first hypothesis: Financial technology has a
positive impact on the efficiency of the banking sector, H1 has been partially
rejected. As the results regarding the sub-hypotheses are: H1a: Financial technology
has a positive impact on deposits and total loans. H1a has been accepted. H1b:

4
RTS - Returns to scale, IRS – increasing, DRS – decreasing.
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Financial technology has a positive impact on total loans and interest income. H1b
has been rejected. H1c: Financial technology has a positive impact on interest
expenses and deposits. H1c has been rejected.

5. Conclusion and Discussion

Financial technology is a relatively new technology that has become more important
for businesses to streamline and speed up company processes and transactions. The
purpose of this study and the first research question address the assessment of the
effectiveness of Egypt's CBE bank following the adoption of FinTech.

After reviewing relevant literature, developing a data collection procedure,

collecting and evaluating data to test study hypotheses, it was discovered that
Egyptian banks cooperate with the Central Bank of Egypt and the regulatory bodies
to achieve economic growth to transform the Egyptian society into a non-monetary
society. Technical expertise is shared to provide financial services to people who do
not deal with banks to enhance financial inclusion in Egypt. However, according to
sustainability report, 2019 'CIB', Financial inclusion in Egypt need more bank
branches in every place for easy access to customers in all parts of Egypt, and
consequently, the ATMs to provide financial services and products at an affordable
cost, to reduce poverty, achieve economic growth, and financial illiteracy.

The CBE's technical efficiency is influenced by the models chosen in this study,
which are defined by input and output variables. The combination of input and
output variables selected has a significant impact on assessing bank efficiency.
According to the three models for the Fintech period, technical inefficiency is caused
by a failure to operate at the most productive scale, managerial inefficiency, and
inadequate input utilization.

Model M1 offers growing returns to scale during the fintech periods, therefore it's
suitable for taking deposits and lending. During the Fintech period, the returns to
scale of models M2 and M3 decreased. Further research can be done to observe the
technical efficiency of particular banks to identify those with growing or diminishing
returns to scale. This might offer more perceptions on managerial flaws in handling
resources and the ideal scale of production.

This study is designed to find out whether there is a direct impact on Egyptian banks
since the announcement of the expansion in the use of financial technology or not.
To enable the ecosystem and establish a healthy atmosphere for startups and
entrepreneurship, the association will continually contact regulators such as the
Central Bank of Egypt, the Financial Regulatory Authority. This is on top of
working with the government at all levels to promote the Fintech ecosystem in
Egypt. The Egyptian government and the Central Bank of Egypt's initiatives to
digitize payment systems and achieve financial inclusion goals have resulted in a
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rapidly expanding number of Fintech businesses. These initiatives include

establishing organizations that link all Fintech ecosystems such as:

1. Egyptian FinTech Association: it is a member of the Global Fintech Hubs

Federation and is a non-profit, non-political organization based in Egypt
started in 2019. It is a cross-industry project that aims to serve as a forum
for all market participants and stakeholders in the FinTech ecosystem to
collaborate. It will allow members to collaborate with a variety of
stakeholders to develop answers to the industry's problems. The
Association's mission is to grow Egypt's financial technology ("Fintech")
business and to serve as a venue for the exchange of ideas, distribution of
information, and collaboration among various players in Egypt's financial
technology services industry and entrepreneurial ecosystem. It will foster
cross-industry innovation and collaboration among banks, microfinance
institutions, telecommunications companies, technology companies,
insurance companies, venture capital firms, universities, consulting firms,
law firms, R& D facilities, and any other key players who may emerge in
the future.
2. CBE FinTech Hub: it is a digital platform that fosters and connects all
Fintech ecosystem stakeholders, including Fintech startups, financial
institutions, regulators, service providers, mentors, and investors, through
innovation and technology coming to life in 2019. It is, first and foremost, a
one-stop-shop for Fintech-driven companies, mentors, and financial
institutions that is vital for cooperation and networking. Second, assist
companies in obtaining funding by linking them to investors and Fintech
pools of funds. Thirdly, a technology-enabled networking platform for all
Fintech players. Fourthly, FinTech Sandbox access, which serves as a
virtual regulatory area for FinTech businesses. Finally, it's a well-organized
venue for FinTech events, workshops, training, and competitions.

According to Adam (2021), in the Egyptian financial market, banks are the
most important service providers. They control the majority of the market's
financial assets and flows. According to the Central Bank of Egypt's annual
report for the fiscal year 2017–2018, the number of functioning banks has
increased to 39, with over 2,800 branches across Egypt. With 133,651 mobile
payment agents, sixteen of these banks provide full-service e-banking and
mobile financial services. Thirty-two of Egypt's 39 banks provide online
banking services, with 1.4 million registered accounts and transaction volumes
of EGP 128 million EGP (about $7 million). Furthermore, 2,800 federal
agencies issued 4.5 million payroll cards and seven million pension cards.

However, the research results revealed that the CBE still exhibited poor
utilization of inputs, managerial inefficiencies, and not operating at an optimal
scale. Therefore, the second research question addresses the best practices to
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make the Egyptian banks more efficient. Egypt government exert huge effort to
grow Fintech services and make it available to each individual un the society.
Payment services, mobile cash, and smart wallets are the most developed
sectors in the Egyptian Fintech startups. Savings and investments, insurance,
financial management, crowdfunding, and blockchain are among the other
industries covered by Egyptian Fintech. It grows each day. For example:

➢ Payment service providers: Fintech startups let banked and unbanked clients
transfer money, payphone, and other utility bills, and use a variety of other
payment methods. Fawry is one of Egypt's most well-known Fintech
startups that offers payment services. T-Pay Mobile, PayMe, PayMob, and
Vapulus are some of Egypt's other digital payments Fintech startups.
➢ Micro-savings: 7aweshly is a service that allows unbanked clients to save
little amounts of cash. Feloosy helps consumers save money for a certain
investment. MoneyFellows allows users to safely form money circles and
classifies them based on their income and other characteristics.
➢ Mobile wallets: licensed banks can provide mobile wallets, taking cash
deposits in return for creating electronic money, according to the Central
Bank of Egypt's new laws for cashless payments via Mobiles, which were
released in 2016. Cash-in/cash-out, person-to-person (P2P), international
money transfers (IMT), ATM cash-in/cash-out, person-to-merchant (P2M),
merchant-to-merchant (M2M), virtual card number (VCN), and account
value load (AVL) from bank to wallet accounts are all covered by the new
regulations.
➢ Micro-Insurance: Carsurance is an Egyptian Fintech company that provides
insurance quotes.

The study aims as well to introduce innovative ways to encourage investors to invest
in FinTech start-ups to increase the number of FinTech firms in Egypt to improve
the efficiency of banks and understand the challenges that face FinTech spread. This
is the third research question that addresses the best ways for financial technology to
spread all over the social sectors.

The researcher develops the following recommendations based on the findings and
conclusion which may mature financial technology in Egypt and make greater use of
it.

1. Transferring ATMs to work without cards through the "long-range

communication" technology, which allows customers to withdraw cash from
their balances using digital wallets or the bank's application by bringing the
phone closer to the ATM screen to withdraw cash without the need to enter
a card or password to verify the identity of the customers.
2. Providing mini-seminars in a simple way across bank websites for
customers, especially for elderly people who face problems in using
technology, to explain how to properly use the electronic services of banks.
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3. Find Monetization Opportunities with Blockchain (DLT) technology is

appointed for certain financial services because it is digital and
cryptographically sealed, designed to be distributed, and synchronized
across networks. Furthermore, it is unchallengeable, which means that once
a transaction has been agreed upon and recorded, it cannot be modified.
4. Getting benefit from the international experience: Monzo British Virtual
Bank the first British virtual bank operates without a traditional banking
infrastructure such as the presence of the main entity and a group of
branches, and it also obtained a license from the Central Bank, a feature that
saves a large proportion of costs, which helped to provide accounts with
high-interest rates and loans with lower interest rates from banks. Fully
working like mortgages and loans, prepaid visa activation, with an app that
helps you control spending by sorting.
5. Considering the successful experience in the other countries such as
Germany which designed the first automatic teller machine that enables the
person to withdraw gold bars in 2009. The machine requires the customer to
enter cash or credit cards, to obtain small pieces of gold-bearing the GL
"Galleries Lafayette" logo with size and value equal to the amount deposited
in the device, or exchange cash for 24. The machine also allows the
customer to choose the weight and model of gold he wants to buy.
6. Investment in Artificial Intelligence: The most influential trend is a
technology where AI-based on distributed and shared data set as it is used
for dynamic and psychological customer segmentation. The combination of
predictive and cognitive capabilities is a trend that includes technology
partners as we have noted in the cases of Watson from IBM and Alpha Go
from Google. Early movers who collaborate with tech companies will
change into a system. Adopting another generation of quantum computing.

This research offers practical implications on the management of technology where

banks can learn the lessons of the systemic nature/characteristics of FinTech-based
innovations, as well as the dynamics of the banking industry to pursue appropriate
strategies in market competition (the ways the banks manage technological
complexities and the use of technology strategy to improve its competitive position
in the banking sector) to follow Egypt's 2030 Sustainable Development Plan.
The research has some limitations including that DEA has weaknesses like
measurement errors of the input or output which lead to some differences in the
results. In addition, The DEA method does not measure absolute proficiency.

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